Addressing the barriers to climate investment

This guide from CDKN’s Climate Finance Advisory Service summarises the barriers to financing mitigation and adaptation activities, as well as discussing factors to consider when selecting and implementing financial instruments. The key financial instruments considered in this guide are discussed in relation to the Green Climate Fund, but the lessons are applicable to other channels for climate finance.

It considers barriers related to mitigation and adaptation at the project level, and particularly climate finance barriers, to be a hot topic of discussion at CoP19 in Warsaw. Key messages of this publication include: (i) support schemes should not aim to make all projects financially viable, but should support projects that will be beneficial from society’s point of view but which, for some reason, are not attractive to commercial investors; (ii) understanding the project-level barriers to investment related to mitigation and adaptation is important, in order to identify the ‘best’ projects and design appropriate financial instruments; (iii) subsidies and investments cannot compensate for the absence of supportive policies; investments need a favourable policy environment to be effective; and (iv) individual financing instruments have a number of parameters that can be adjusted to tackle specific barriers to investment.

It argues that, while there is no one-size-fits-all instrument, certain standards will help to reduce transaction costs when the instrument is used; and that, depending on the role of the national climate finance institutions, they need a certain level of expertise to make best use of the support.